“Yes I have one Dussehra gift for the viewers that is Leel Electricals,” SP Tulsian said with a big smile on his face.

He then proceeded to give a masterful explanation of why Leel Electricals deserves to be given pride of place in our portfolios.

(i) LEEL has ambitious future plans after having divested its stake in the consumer durable business to Havells for Rs 1,550 crore;

(ii) LEEL still caters as a B2B AC supplier to a majority of the A/C makers because they are the leaders in HVAC segment i.e. heating, ventilation, air conditioning and refrigeration segments;

(iii) LEEL also caters to the railways and the metros;

(iv) It is the preferred supplier for the HVAC segments and is chosen by international suppliers for all rolling stocks which needs HVAC i.e. heating, ventilation, air conditioning and refrigeration. This is their core business;

He explained that the fortune of Rs. 1500 crore received by LEEL from Havells will be used to repay debt and de-leverage the balance sheet.

He also pointed out that the Company is quoting at a throwaway P/E valuation of about 6-7 based on its projected EPS.

SP Tulsian also drew inspiration from the fact that Dixon Technologies, which is in an identical business, is quoting at a P/E multiple of 35-38 even though the margins it commends are lower than that of LEEL’s.

He also predicted that LEEL will surge to a target price of Rs 325 in six months even as Latha Venkatesh smiled back at him, thoroughly impressed.

Porinju recommends LEEL

Porinju explained that the drastic debt reduction that LEEL has witnessed in the wake of the Havells’ deal means that it is only a question of time before it is re-rated.

He also emphasized that the steep discount at which LEEL is quoting in comparison to its arch rivals Dixon and Amber is unsustainable.

Fy17 Leel made 936cr in package, Intersegment 411cr, Heat exchanger 604cr, 350cr overseas, so total of 2300c without adding consumer durable business they sold to Havells. Added 411 cr interseg to total, as they sold CD business, so 2300cr rev, 1600cr networth avialabl @ 1150cr

LEEL will be re-rated due to sale of the low margin business: Aveek Mitra

He explained that the downside in LEEL is limited because the cash in the books of Rs 1000 crore is itself worth the entire market capitalisation of Rs 1000 crore.

By implication, if the downside is protected, even a slight uptick in operational performance will be sufficient to send the stock surging like a rocket into orbit.

Conclusion

Prima facie, it is not everyday that we get a chance to tuck into stocks with low downside risk and high upside potential. Also, if we do tuck into LEEL, we will have a chance to rub shoulders with Dolly Khanna, Porinju Veliyath and SP Tulsian which we should not miss out on!

I am listing out here the fundamental features of a few well known stock advisory services. The fees charged, as well a few stocks that they are credited with having recommended, are set out. If you know of other service providers, do chip in. Also, if you have used any of these services and have […]

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